Big community banks take hits in credit, housing areas

Banking

Central Florida's largest community banks have taken a financial bruising this year as the real-estate slump and credit crunch have taken a toll.

Though most have avoided losses, many of the region's largest community banks have seen their profits plunge in 2008, according to the latest regulatory figures.

Meanwhile, the banks have added millions of dollars to their reserves to cover potential loan defaults in the future as the effect of the housing slump continues to unfold.

Consider this first-quarter data released by the Federal Deposit Insurance Corp.:

Total earnings were down during the period at nine of the 10 largest banks based in Central Florida. A half-dozen fell at a double-digit pace -- five of them more than 36 percent.

Eight of the 10 top banks boosted their loan loss reserves during the quarter -- five at a double-digit pace, and two at a triple-digit pace -- from a year ago.

Seven of the top banks booked dramatically higher charge-offs, in some cases up more than fivefold from first quarter 2007.

The numbers demonstrate how even typically conservative community banks have been hit by the credit meltdown, though most have avoided the massive red ink of their big bank counterparts.

Unlike the big banks, it hasn't been the collapse of complicated mortgage-backed investments that has hurt the community banks' bottom line, experts say.

Instead, it has been a more direct result of the housing slump: rising delinquencies and defaults in real-estate development loans.

"This is a spillover effect of the whole real-estate mess," said Rod Jones, an Orlando banking lawyer and former state banking regulator. "In most cases, we're not talking about mortgage-related business. For community bankers, it's an exposure to problems in the real-estate market through loans to developers and builders, whether it involves single-family residential or condo projects."

Of the region's largest banks, only Independent Bankers Bank turned in positive earnings growth during the first quarter. But the Lake Mary-based bank is not a consumer services financial institution. It provides transaction processing, correspondent lending agreements and other services to retail banks.

Independent Bankers posted a $1.2 million first-quarter profit, up more than 130 percent from the year-ago quarter.

But it received a major boost from credit-card giant Visa's initial public offering earlier this year, officials said. The bank cashed in 25,000 shares that it received from Visa for transaction-processing services it provides to other banks and their credit-card customers.

"We used those proceeds plus the profits from our overall organization to build our loan loss reserve and prepare for the downturn that is intensifying in the loan market," said James McKillop, the bank's chief executive officer.

Independent Bankers Bank increased its reserves to $7.2 million during the quarter, up more than threefold from the year-ago period, according to FDIC data.

"We have been very aggressive in trying to deal with the implications of the loans we have that are deteriorating," McKillop said. "For most financial institutions, shoring up loan loss reserves is going to be a process that is going to continue for many quarters into the future."

Most community bankers are taking their hits now and setting aside enough money to deal with potential problems in the future, said Jones, the banking lawyer.

"Everyone knows the economy is bad now and nobody is doing very well," he said. "It's a situation in which you can report bad news without sticking out like a sore thumb when everyone is looking bad at the same time."